Search

Navigating 1031 Exchanges with Related Parties: Understanding the Rules and Avoiding Tax Liabilities

The items below are a sample of frequently asked questions I receive from clients and prospective clients. Of course, this information is only for consideration only and should not be relied upon in making an investment decision. All investments should be made after carefully considering your own investment profile and needs, and in conjunction with conversations with your financial professional and/or tax specialist. There can be no guarantee that any investment will achieve its stated objectives.

Question:

Hello, my name is Jacqueline and I am selling a property and in purchasing another property that happens to belong to my brother. does this qualify under the 1031 exchange rules? If not, how can I keep from paying Uncle Sam capital tax?

Answer:

Your question is a "related persons" question and has to do with the relationship of parties in a 1031. If, in your exchange, you buy your brother’s property at fair market value, and hold the property for two years or more, and your brother does not use the proceeds from your purchase for his own 1031 — then your exchange is valid. If not, you do not have an exchange, and you have to pay the applied taxes. You can keep from paying Uncle Sam “capital tax“ by following the 1031 rules and exchanging for equal or greater with the purchase of a non-related persons property.

1031 Exchange